Inheritance in NC

[Super Mom]

A former and possible future tax client called me and said there supposed to be receiving a $20,000 inheritance from an aunt that died. He wanted to know if there's tax implications on that. What should I tell him?

[oceanlovin'ea]

I don't think Inheritances usually are taxable. They can result in more taxes. If you get $20,000 in cash and put it in CD's or stocks, you will have increase in interest or dividends and that would be taxable.

If it is property and the property is sold, it could result in capital gains.

But the inheritance itself is considered income.

Linda F

[DaveO]

Some Caution is merited.

Lay persons will use the word "inheritance" to cover a wide range of things. One question I always ask is "Did you receive a K-1 or 1099?" If an attorney is settling the estate I tell them to ask "Will I receive a K-1?".

If they inherited a CD or cash it would be non-taxable however if an annuity or IRA was involved the answer would be different.

One of the longest and strangest representations I've had started with the simple question, "My husband inherited $20,000 from his grandmother, is that taxable?" I asked my usual questions but could have saved everyone some grief if I had asked, "When did grandma die?" Had I known she had been dead for years I would have kept probing. As it was, Husband had a secret motive and actively concealed the truth much to the eventual dismay of the wife.

[JohnH]

Cagey questioners & misinformation

I've had some situations where the questioner told me another tax preparer had told them the "inheritance" was not taxable. The first question should be "If another tax pro told you it's not taxable, why are you asking me?" Of course, it's often the case that they are an IRA beneficiary, they already know it's taxable, and they're trying for a 2-out-of-3 response in opinion shopping. Maybe they think it will somehow get them off the hook if they 'forget" to report it.